Daily Economic Update

Oil: Price rises on OPEC+ compensation plans and new Iran-related sanctions. Brent futures closed Friday at $72.2/bbl, up 2.2% w/w (-3.3% ytd) the OPEC Secretariat published a timetable of compensatory production cuts that ‘Group of Eight’ members had signed up to and after the Trump administration implemented new Iran-related sanctions. According to the OPEC release, all members participating in 2024’s voluntary cuts that had serially or occasionally overproduced in relation to their production quotas – most egregiously Iraq and Russia but essentially all except Algeria – agreed to compensate by cutting production going forward. In volume terms, compensatory cuts amount to an average of 263 kb/d from March through to June 2026. The cuts are mostly frontloaded or skewed to the summer months and borne by Iraq (-122 kb/d on average), Kazakhstan (-57 kb/d) and Russia (-44 kb/d), but Kuwait (-9 kb/d), the UAE (-23 kb/d), Oman (-6 kb/d) and Saudi Arabia (-2 kb/d) are also included. Now, ‘Group of Eight’ members were due to begin unwinding their 2.2 mb/d worth of supply cuts from next month through to September 2026 at a monthly rate of 138kb/d, so the inclusion of these new compensatory cuts implies that, in aggregate, barrels have been withdrawn from rather than added to the market, at least until June. For Kuwait, crude production will not see a net increase from March’s pre-taper level of 2.41 mb/d until September (2.43 mb/d). All of this, of course, assumes perfect member compliance, which has not happened in the past and is unlikely to be the case going forward. Serial overproducer Iraq is looking forward to the resumption of 300kb/d Kurdish oil exports suspended for almost two years while Kazakhstan intends to ramp up production at the recently completed Tengiz oil field and neither will be content with the imposition of further constraints on their output. Meanwhile, prices were also supported last week by the latest US Treasury sanctions targeting a Chinese refinery and several vessels linked to the Iranian oil trade. This helped offset the bearish impact of a 1.75mb weekly build in US commercial crude inventories as reported by the EIA.

Chart 1: Oil prices ($/bbl) Source: Haver

Global: Flash PMIs for March and the UK’s budget update/February inflation key matters this week. In the US, the S&P Global Flash PMI surveys for March will be released today, with markets keen on assessing the health of the US economy, with consensus expectations pointing to a decrease in manufacturing to 51.9 (from 52.7) and a broadly stable services index at 51.2. PCE inflation for February (due on Friday) is seen at 0.3% m/m for both headline and core, equal to January’s increases. In the Eurozone, flash PMIs for March are due today with expectations of a slight improvement in both manufacturing (to 48 from 47.6 in February) and services (to 51 from 50.6). In the UK, Chancellor Rachel Reeves will announce a Spring budget update on Wednesday, likely trimming some spending as the government struggles to manage the fiscal deficit amid weak economic growth. Revised official economic projections will also be published with the update, and expectations are for a toned-down outlook versus the 2% growth in 2025 that was forecast previously. Inflation for February is due on Wednesday, with the consensus expecting 2.9% and 3.6% y/y for the headline and core rates, respectively, inching down from 3% and 3.7% in January. In Japan, the market will search for clues on the timing of the next interest rate hike with the release (on Friday) of the “summary of opinions” of last week’s BoJ meeting. Meanwhile, Tokyo’s consumer price inflation for March will also be released on Friday with the consensus expecting core inflation (excluding fresh food) to be steady at 2.2% y/y.

Japan: Business activity declines for first time in five months. The flash estimate for the au Jibun Bank Japan Composite PMI fell into contractionary territory (48.5) in March (from 52.0 in February) for the first time in five months. This contraction reflects a downturn in both the manufacturing and services sectors and highlights the weaker business conditions seen across the private sector on the back of subdued demand and rising economic uncertainties. The PMI for the manufacturing sector remained below the neutral benchmark (48.3) in March for the ninth consecutive time, with companies reporting a sharper fall in both production and new orders. On the other hand, the services PMI reading slipped into contraction territory (49.5) in March after expanding over the previous four months. Firms cited labor shortages and weaker new businesses and external demand. Input costs remained high in both sectors, supporting the Bank of Japan’s (BoJ) tightening stance, though the loss of momentum in both sectors is likely to complicate the BoJ’s plan to raise interest rates over the summer.

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